This week, a bill to expand the Child Tax Credit is expected to be passed, which may be of interest to families with children. Fiscal year 2023 tax returns began being accepted on January 29th. The Child Tax Credit is one of the arguments for H.R. 7024 (Tax Relief for American Families and Workers Act of 2024), which has already been passed by the House of Representatives. However, the situation in the Senate remains uncertain.
If passed, this bill will impact millions of households who are taxpayers on their 2023 tax returns. Eligible households could receive an average tax reduction of $680 on their 2023 tax return. The proposed changes to the child tax credit in the $78 billion tax package are intended to provide even more substantial benefits to households, especially low-income families. To summarize these changes, there are five key points:
The refundable portion of the child tax credit will increase from $1,600 to $1,800 for the 2023 tax year, $1,900 for the 2024 tax year, and $2,000 for the 2025 tax year. This increase means families could potentially receive a subsidy and a refund even if they have not paid any taxes.
Additionally, the bill proposes a new formula for calculating the maximum refundable credit, which will be based on a per-child basis. Currently, the formula multiplies earned income over $2,500 by 15%. However, under the new proposal, this calculation would be done per child, resulting in higher credits for families with multiple children.
The purpose of this change is to benefit low-income families with more children. Remember to use the previous year’s earned income. For tax years 2024 and 2025, households may use the prior year’s earned income to calculate the maximum child tax credit. This provision benefits those who expect to earn less this year than the previous year.
The proposed changes are expected to reduce eligible households’ taxes by an average of $680 in the 2023 tax year. This adjustment is especially beneficial for low-income households since they will have access to a larger refundable portion of the credit.
Currently, the child tax credit is worth up to $2,000 for each qualifying child under the age of 17 in the 2023 tax year. The credit begins to phase out for single and individual filers once their modified adjusted gross income (MAGI) reaches $200,000. $400,000 is the maximum credit for married couples filing jointly. Up to $1,600 of the credit will be refunded in the 2023 tax year.
IRS Commissioner Danny Werfel said at a press call that “if there’s a change that impacts your return, we will make the change, and we will send you the update — whether it’s an additional refund or otherwise — without you having to take additional steps,” Werfel told reporters during the press call. However, the originally filed tax returns must be accurate.”
Update: The House voted on Wednesday evening, January 31, 2024, to pass a $78 billion bipartisan tax package that would temporarily expand the child tax credit and restore a number of business tax benefits.
Congressional Budget Office H.R. 7024, Tax Relief for American Families and Workers Act of 2024 https://www.cbo.gov/publication/59916
Congress.gov H.R.7024 – Tax Relief for American Families and Workers Act of 2024
118th Congress (2023-2024) https://www.congress.gov/bill/118th-congress/house-bill/7024/actions
The White House https://www.whitehouse.gov/child-tax-credit/
IRS Child Tax Credit https://www.irs.gov/credits-deductions/individuals/child-tax-credit
These are the proposed changes to the child tax credit — and how much you could get https://www.cnbc.com/2024/01/24/how-the-proposed-child-tax-credit-changes-could-affect-2023-taxes.html
Child tax credit could change — but ‘don’t wait on Congress’ to file your taxes, IRS commissioner says https://www.cnbc.com/2024/01/30/child-tax-credit-could-change-but-dont-wait-to-file-taxes-irs-says.html
The New York Times More Money for Parents? Both Parties Just Might Make It Happen. https://www.nytimes.com/2024/01/30/upshot/child-tax-credit-poverty.html
House eyes vote this week on child tax credit bill, which faces some speed bumps https://www.nbcnews.com/politics/congress/child-tax-credit-bill-vote-house-opposition-rcna135930
Child Tax Credit 2023-2024: What It Is, Requirements and How to Claim https://www.nerdwallet.com/article/taxes/qualify-child-child-care-tax-credit
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